Tuesday, February 19, 2013

Budgeting Bliss

Everyone struggles with budgeting. This is nothing new. Typically, people plan to put an allotted amount in savings each month, but then something comes up and the savings account is drained once again. This is a continual cycle that is both frustrating and discouraging. So, what can you do to break the trend and stick to an effective budget? Here are a few tips that I have acquired through both research and experience:

1. Write it down. On top of all of the other things we keep floating around in our heads every day, it is impossible to remember an entire household budget without writing it down. It does not matter if you use Excel spreadsheets, Quicken, or simply pen and paper; just write it down. You can hang this budget on the wall or carry it in your wallet. By putting your financial obligations on paper, you are more likely to stay within your budgeting limits and not go off course.

2. Set Goals. So, you want to redecorate the house? Or maybe you want a new car? Even a vacation? Set financial goals that will help you remember why you are saving money in the first place. These can be short term, like the ones mentioned above, or long term like a college fund for your children or a retirement fund. Regardless of what your goal is, making goals and writing them down will help you not squander away your extra money on frivolous things.

3. Prioritize. I can not emphasize this enough! PRIORITIZE your money. So, you have your budget and you have your goals... now you have to put these things in order of most important. Obviously, paying your monthly bills is more important than putting up money for a vacation. This step is focused on prioritizing your goals. There is no reason why you can't save up for a new car and a college fund at the same time. Since your car goal is shorter (0-3 years) than your child's college fund goal, you might want to put slightly more money into the car fund. The sooner you reach the car goal, the more money you can start lump summing money into the college fund.

4. Pay Off Debt. One of the most liberating feelings comes from paying off that last bit of credit card/student loan debt. If possible, try to pay more than the minimum monthly payment for these bills. Create a game that helps you look forward to paying off the bill. A good example of this is a board game. Draw a board game (looks something like CandyLand or Monopoly). Create payoff check-points along the way. When you reach each checkpoint, have a reward for yourself. For example, when you pay back 1/4 of your loans, treat yourself to dinner or a movie. Continue this reward system throughout your plan. Check off your path as you make each payment. This will make paying back bills rewarding and possibly even something to look forward to!

P.S. Paying off your debt should be in your "Goals" section...

5. Create An Emergency Fund. A general rule of thumb is that an emergency fund should amount to three month's worth of expenses. This fund is extremely important and should be saved as soon as possible. In the event that you lose your job or something catastrophic happens, you can pull money from the fund to cover the expenses without altering your financial plans for your goals. When you dip into this fund, you need to build it back up as soon as you are able. You will be surprised at how handy this fund can be when those unexpected expenses happen.